Tuesday, May 31, 2011

Global-Tech v. SEB -- I see, said the willfully blind man

It's not that often when the Supreme Court takes a patent case -- and it's almost always when it thinks the Federal Circuit, who is supposed to take care of such matters, gets something seriously wrong.

Thus, the Supreme Court's decision today in the Global-Tech Appliances v. SEB, S.A. case, which at least appears to have tightened up the law on the mental state required to show infringement by inducement. However, the facts of this case show enough bad conduct that the Supreme Court may have felt the need to do something to the defendant, which may have resulted in a ruling which is confusing to say the least and may be almost impossible to apply in the real world.

SEB had invented an innovative deep fryer and obtained a U.S. patent. Sunbeam, its competitor, who was rapidly losing market share, asked its Hong Kong supplier Pentalpha, to provide a deep fryer which could compete with SEB's. Instead of doing the right thing, Pentapha simply bought an SEB fryer overseas (lacking, of course, any U.S. patent markings) and just copied it. It retained an attorney to do a patent search omitting, unsurprisingly, the fact that it had directly copied the SEB product. This attorney, for some reason could not find the SEB patent which covered the very same fryer that Pentapha had copied and issued an opinion letter saying there were no patent problems. Sunbeam started selling the Pentapha fryers under its own brand at a price that undercut SEB's.

SEB sued, and then settled, with Sunbeam. It then sued Pentapha, who had gone on to sell the fryers to other retailers who sold them under their respective trademarks, under a theory of induced infringement. Pentapha's defense was that it did not know about the SEB patent under Sunbeam's notification to Pentapha that it had been sued.

The question for the Supreme Court was the level of "knowledge" necessary to support a clain for induced infringement. The existing Federal Circuit law held that it was sufficient for a plaintiff to show that the accused inducer "deliberately disregarded a known risk" that its customer would be infringing. Pentapha argued, however, that actual knowledge of the patent was required, which it, of course, argued that it did not have.

Going back to the opinions of William Howard Taft, the Court ended up splitting the difference between those 19th century and early 20th century cases which basically imposed no "knowledge of infringement" standard and more recent law on the subject of contributory infringement which held that actual knowledge of the patent was required.

Now comes the headfake.

Pentapha's conduct was too egregious to let go unpunished, so the Supreme Court fashioned yet another rule to handle persons who are not aware of the patent but who still engage in bad behavior -- the "willfully blind" standard, imported from criminal law. Under this standard, even an accused inducer who does not know about the patent can be liable if it deliberately "shielded" itself from "clear evidence of critical facts." Specifically, the doctrine applies if (1) the defendant subjectively believes that there s a high probability that a fact exists and (2) takes deliberate action to avoid learning of that fact.

Pentapha's decision not to inform the attorney it hired to write the opinion letter that it was making a deliberate knockoff of the SEB fryer was, according to the Court, sufficient to satisfy the "willful blindness: test.

Justice Kennedy, alone in dissent, was confused at this results-oriented decision. He noted that the path the Court took to get to the "willful blindness" standard was nothing if not tortured. He also noted that the Supreme Court appeared to have endorsed the "willful blindness" standard for all criminal cases involving knowledge -- a massive change in jurisprudence be inappropriate for decision in a patent case.

So what does all this mean?

It means that, as far as the standard for knowledge in cases of induced infringement, basically nothing has changed. As a practical matter, "deliberate disregard" will now become "willful blindness." No one will really know the standard for knowledge in inducement cases. Bad conduct will continue to be punished.

But we have, however, been saved from the plague of knockoff deep fryers. And that's something.

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